Citi: Besent May "Slash" Long-term Bond Issuance Next Month, 20-year US Treasury Issuance Could Be Directly Canceled

According to news from Zhihu Finance APP, Citigroup has released a research report stating that U.S. Treasury Secretary Scott Besant is highly likely to reduce the issuance size of long-term U.S. Treasury bonds, and may even completely cancel the issuance of 20-year Treasuries.

Jason Williams, Citigroup’s Head of U.S. Rates Strategy, said the bank’s base-case forecast is for each auction of 20-year and 30-year Treasuries to be cut by $300 million, with the gap filled by increased issuance of short-term Treasury bills. This adjustment is expected to be announced at the Treasury’s next quarterly refunding statement on November 4.

In his Friday report, this Citigroup strategist advised clients to position for 20-year Treasuries to outperform 10-year Treasuries, based on expectations of a “reduction or even complete cancellation of 20-year Treasury issuance.”

The first signal of this change may come from a dealer survey scheduled for next Friday. Williams noted that if the Treasury asked major financial institutions whether the demand for long-term bonds was being “partially eroded” by bond issuances from high-quality, ultra-large-scale cloud computing enterprises, then this questionnaire could serve as a “bullish catalyst” for the aforementioned trade.

He wrote: “Although we believe the supply of such investment-grade bonds has not affected overall rates, we do think pension funds may be allocating to long-term investment-grade bonds more than before.”

Currently, debate is heating up on Wall Street about what measures Besant will take to curb U.S. Treasury yields, which are near multi-decade highs. Earlier this week, BNP Paribas strategists said they were skeptical that such measures could effectively reduce U.S. government borrowing costs.